Tollens Kul CIRAD 2010


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Tollens Kul CIRAD 2010

  1. 1. Final Workshop of the Cocoa Marketing Improvement Project P j t Akwa Palace Hotel Douala, Cameroon Douala ICCO – CFC Prof. Eric Tollens Centre for Agricultural and Food Economics K.U.Leuven Leuven, Belgium 2-3 November 2006
  2. 2. Conditions for an Efficient Market Information System in M k tI f ti S t i Cocoa Producing Countries Prof. E i Tollens P f Eric T ll K.U.Leuven Leuven, Leuven Belgium
  3. 3. 1 Introduction 1. We all agree that a performing, efficient CMIS is a key accompanying measure to market liberalization. Market liberalization often results in less transparant marketing and loss of market p g power to farmers. Nigeria sta ted a C S in 2002 in t e framework o t e ge a started CMIS 00 the a e o of the Cocoa Marketing Improvement Project.
  4. 4. Cameroon already had an Arabica Marketing Information System (AMIS) operational in 1993 after the arabica coffee sector was liberalized in 1992. This was followed by SIMARC-CRAMIS for SIMARC- cocoa, robusta and arabica coffee from 1994 on when robusta and cocoa sectors were also liberalized. However when do o donor financing ran ou , the sys e nearly a c g a out, e system ea y collapsed
  5. 5. Côte d’Ivoire initiated a large Coffee and Cocoa MIS in 1998 at the start of the coffee-cocoa coffee- market liberalization, called PRIMAC (Programme d‘Information sur les Marchés du d Information Café et du Cacao). The Ivorian system is by far the largest and most complete CMIS in place place.
  6. 6. 2 Objectives of a CMIS 2. The main objective is to enhance competition in the market by increasing market transparency for all market participants in particular the participants, weakest: smallholder farmers. A MIS means empowerment of farmers, strengthening th i b t th i their bargaining power – i i increasing their share of the export proceeds, countervailing monopsonist buying practices. t ili i tb i ti
  7. 7. Transparency in agricultural markets results in the following effects: - the farmers receive the proper production incentives, will adjust their production accordingly and will seize on market opportunities; k t t iti - information can improve the bargaining position of the weaker participants in a marketing system who are usually the smallholder farmers; - competition is enhanced in markets, resulting in fair prices for all participants; - market information signals profit opportunities and thus th creates incentives f market participants; t i ti for k t ti i t
  8. 8. - seasonal and erratic price variations will be reduced and arbitrage between markets will take place, thereby reducing price differentials between markets. In completely transparent and efficient markets, price differentials reflect only transaction costs (mainly transport costs) between markets; - overall risk is reduced for all market participants, resulting in more stable markets improved long term markets, planning and investment decisions; - improved government regulation of marketing: better agricultural and marketing p g g policies and p public investments as the government will be adequately informed about market conditions and performance.
  9. 9. 3. Characteristics of a performing CMIS The Th market i f k t information must be: ti tb – relevant – meaningful – reliable and impartial (accurate) (neutral) – promptly available ( p p y (timely) y) – easily accessible – simple
  10. 10. Market information provided by a public authority is a public good – the free rider principle applies applies. Market information is a perishable commodity. Information is also power and is a powerful tool in the empowerment of farmers in liberalized markets.
  11. 11. Objectives of a MIS: Market information must be: • Enhance competition Market Information System ▪ Relevant ▪ Prompt (MIS) • Increase market transparency for all ▪ Meaningful ▪ Accessible participants, especially small farmers ▪ Reliable ▪ Simple Higher farm level prices, price stabilization, higher market integration, lower overall transaction costs Concept and I C t d Implementation of a Performing Cocoa and Coffee MIS l t ti f P f i C d C ff Phase I: Daily collection and Phase II: Weekly collection and Phase III: Fully web-based dissemination of external market dissemination of internal market strategy, including other information via the media information: min-max range, per information besides price kg information f
  12. 12. 4. Results achieved and lessons learned l d 4.1. The dissemination strategy The success or failure of a MIS hinges on a successful dissemination strategy. Thi i a f l di i ti t t This is major constraint. Thousands of cocoa farmers need to be reached and this is a huge challenge.
  13. 13. Experience has shown that the rural or local radio, in local language, is the most effective , g g , means of reaching farmers. This was notably the case in Cameroon with AMIS and SIMARC- SIMARC- CRAMIS which was diffused by the radio in six local languages in the West p g g province and 26 in the North-West province in addition to pidgin. North- In the case of Nigeria, this means relying on g y g State radio (more than national radio) and emerging local p g g private radios. In Cameroon and Côte d’Ivoire, the provincial radios are most important. p
  14. 14. In Cameroon, the main dissemination strategy is now via mobile telephone (GSM) with the SMS service (Short Messaging Service) Everyday the London Service). Everyday, cocoa prices, and the derived FOB Douala prices are disseminated via a short message, either on a regular g g subscription basis or on a call basis via a dedicated call number. This requires that the GSM covers most of the rural cocoa growing areas which is the case in areas, Cameroon, and to some extent in western Nigeria, because of the high rural population density, but not yet in Côte d’Ivoire. One particular advantage of this system is that the proceeds from the GSM system are shared between the mobile phone operators the SMS operators, intermediary service company and the content provider, i.e. the CMIS institution. This thus contributes t the financial sustainability of th CMIS t ib t to th fi i l t i bilit f the institution.
  15. 15. In Côte d’Ivoire, where a web based diffusion strategy is pursued, ten key cocoa cooperatives have been equipped with computers and internet access and the necessary training has also been provided by the Cocoa Marketing Improvement Project and the Government. They can consult the PRIMAC (MIS) website at any time and obtain the needed information, which they can then further disseminate to their cooperative members via leaflets and information boards at warehouses and collection centers in villages. At the same time, the collection of relevant d t i th rural areas i d l t data in the l is done b ANADER by (the National Agricultural Extension System) and the transmission of the data to the central PRIMAC unit in Abidjan is also done via the web.
  16. 16. Finally, television coverage (one minute broadcast) on a regular basis, once weekly, cost- ff may also be a cost-effective instrument to reach large numbers of interested persons. The television is used in Nigeria Cameroon Nigeria, and Côte d’Ivoire for this purpose. A budget has to be foreseen for dissemination. Almost all of the media require payment for regular diffusion of messages of commercial interest. Also interest Also, experience has shown that regular service against payment is best, because then only can regular p y g performance be assured.
  17. 17. 4 2 Financing of a CMIS 4.2. Sustainable financing is p g problematic as long asg income is not assured in an automatic, regular way. A small levy at export is the most attractive proposition. proposition In Cameroon it was estimated that for a Cameroon, cocoa and coffee MIS, this will require about 1 F.CFA/kg exported plus a start-up budget for start- equipment ($ 130.000). 130 000) In Côte d’Ivoire, BCC operates the system on its own resources based on a levy at export. In Nigeria and Cameroon, as there is no export tax (only certain levies), financing is a recurring problem and a major constraint constraint. Minimal reliance on recurrent government budgets or donors is best to enure sustainable financing.
  18. 18. 4 3 Autonomy of the CMIS unit 4.3. Ideally, Ideally the CMIS unit is an autonomous bodybody, with its own budget and staff, a flexible organization, organization shielded from politics and influence, which is impartial, objective and inspires trust trust. This proves to be rather difficult as the institutions running the CMIS unit in the three countries are governmental or parastatal organizations, organizations charged with a public role to defend the interests of the cocoa sector.
  19. 19. 4.4. Impact of the CMIS As a result of a CMIS, one expects: - a reduction in transaction costs; - improved market integration; - reductions in marketing costs; - increased prices paid to farmers; -iincreased competition i th market. d titi in the k t
  20. 20. Undoubtedly, such effects have occured when a performing CMIS is in place. B t it is not known to what extent and how pervasive But i tk t h t t t dh i these effects are or have been. No impact studies on the effects of a CMIS have been done in the three countries. According to Michael Wilcox and Philip Abbot ( g p (doingg research for the STCP project) in “Market Power and Structural Adjustment – The Case of West African Cocoa Market Liberalization” (2004) there is Liberalization (2004), evidence of market power exercised by multinational exporters/processors in concert with the Ivorian p p government which is collecting export taxes. Perfect competition is rejected and markups/downs range from 24.6% to 36.5%. For multinational traders only, 24 6% 36 5% only the markups/downs range from 8.9% to 20%.
  21. 21. 5 Conclusions 5. An efficient CMIS ensures perfect symmetry in market information for all market participants, perfect participants competition and fair prices for all. In a perfectly competitive market marketing margins market, will vary across space by differences in transaction costs only. Such differences are determined by infrastructure conditions, distances to port or buying center, transport costs and other logistical costs risk etc costs, risk, etc. But markets are far from perfect. And market information is rarely p y perfect as it is a p perishable commodity and linked to market power.
  22. 22. Undoubtedly, the GSM-revolution of mobile phones in GSM- the three countries has contributed a lot to better access to market information. As the coverage of the GSM network is being extended, more and more farmers can be reached at low cost cost. Nevertheless, the local rural radio remains very important in the dissemination strategy. p gy A web-based dissemination strategy is being pursued web- in Côte d’Ivoire with some success, but it requires well functioning and viable local cooperatives as relay stations. Particularly in Côte d’Ivoire where evidence suggests that th t exporters/multinational companies exert some t / lti ti l i t market power, a countervailing power by cooperatives/producer organizations well equiped and using a CMIS i i order. i is in d
  23. 23. Also in Cameroon, marketing cocoa via farmer groups such as is happening in Central province and Mbam does appear to countervail buying power and yields important premiums. In Ni i I Nigeria and C d Cameroon, th ithe issue of sustainable f t i bl financing of the CMIS is not yet resolved. This is partly a res lt of the f ll liberali ation of the partl result full liberalization sector, with no export taxes and thus minimal government revenue from the sector sector. Ways and means must be found to finance a performing and efficient CMIS in these countries. Without it, cocoa farmers are dis-empowered, subject dis- to excessive market power by ( p y (monopsonist) p ) buyers/exporters.
  24. 24. In Nigeria, no evidence of market power is g , p found. For Cameroon, the same authors in “Can Cocoa Farmer Organizations Countervail Buyer M k P B Market Power?”, state that “ market ?” h “… k information is asymmetric in favor of the buyer, resulting in significantly lower prices being received by farmers. Access to accurate and timely information often comes from membership in a farmer group. Marketing cocoa via farmer groups does appear to g p pp countervail buying power. …Premiuns are found for transactions involving farmer organizations in the Center region where coops are most active and successful, …”.
  25. 25. It does appear from the above that the CMIS in place are far from perfect and efficient. Information asymmetry in cocoa markets is still prevalent, to the disadvantage of cocoa farmers. Some monopsony power is still exerted by buyers/exporters resulting in “rents” being extracted from farmers. Competition in the markets is far from perfect and lack of adequate market information by farmers is still costing them a lot of money.
  26. 26. Thank you. y